Australia must take up the challenge presented by its rift with the United States over trade and foreign policy to strengthen bilateral relationships with other countries in these critical areas. We should also move to capitalise on the opportunities President Donald Trump has created by pulling back on climate commitments and USAID.

John Hewson
Road map to a US reset

On tariffs, Trump will remain pig-headed – the administration has flagged plans to announce bespoke levies on each of its more than 200 foreign trade partners by April 2. The president will eventually have to face the consequences of this protectionism in terms of stagflation, that is, accelerating inflation and slowing growth. His initial decision to impose tariffs on our steel and aluminium exports, although disappointing, will hurt the US much more than it hurts us. It will raise the cost of steel in the US, with a detrimental impact on the industries that rely on steel inputs, whose employees greatly outnumber the people working for steel producers in the US.

The biggest loser from tariffs is the country that imposes them: not only will they push the US to the brink of recession but they will also weigh on stocks. Trump always used to refer to the strength of American sharemarkets as a sign of support for his policy agenda, but he was unable to gloat in his recent address to Congress, and was likely stung by how quickly they had responded with a negative judgement.
This further deterioration in the US economy and cost of living will ultimately be reflected in the polls, and will probably manifest politically in the midterm elections. The complete picture will depend on how the US Federal Reserve responds to a resumption of inflation, as any proposed interest rate hike must be weighed against the heightened risk of recession. If Trump fulfils another election commitment to act against the independence of the Fed with any attempt to overrule it, that in turn would have even more catastrophic impacts on the economy and financial markets.
None of this will happen in a vacuum – how other countries react to Trump’s initiatives will be key. That in turn will decide whether inflation reignites globally and how central banks respond. A widespread tightening of interest rates could well precipitate a world recession – that is, an expansion of the slowdown that is already evident in the two largest economies, the US and China.
China has made it clear it will respond to any type of war initiated by Trump. The US president seems to ignore, or at least not understand, the range of economic weapons China can activate, from weakening the yuan to initiating a strike against US debt – as the second-largest foreign holder of US Treasury securities after Japan. Trump may think of himself as a “strong man”, but his economics are that of a delusional novice, pretending he can call all the shots, when clearly he can’t. There is already talk among some countries of a boycott against US products – a coordinated strategy along these lines would leave him playing alone in his sandpit.

Australia needs to make the point to Trump, very strongly, that there is a limit to which we can be bullied. The US has enjoyed many – too many – benefits in its relationship with this country, under what we had assumed was a friendly, supportive alliance.
The Albanese government has, correctly, stood firm against further direct participation in this circus in deciding against retaliatory tariffs. This is in our national interest, as such action would be even more counterproductive. The government continues its public attempts to maintain a dialogue on a carve-out from future tariffs but likely understands this effort will be futile. Trump was never going to agree to an exemption for any country. It will be important to sustain this pressure on the US, however, as the likely next products to be hit by tariffs are pharmaceuticals and agriculture – worth far more in terms of our US export business than steel and aluminium.

At the very least we should recognise that our government is on the right track, seeking to diversify our export markets, to trade more with our biggest partners – China, Japan, South Korea and India – and other major markets, including Europe, and to initiate trade with new countries, especially in our region.
Australia needs to make the point to Trump, very strongly, that there is a limit to which we can be bullied. The US has enjoyed many – too many – benefits in its relationship with this country, under what we had assumed was a friendly, supportive alliance. Specifically, we might need to reassess the quid pro quo of what we have given. We have had to accept the painful reality that, despite our success in the past, we were never going to be exempted from tariffs under the prevailing circumstances. That’s despite the fact Australia had negotiated a free trade agreement with the US that gave it the capacity to export anything to this country, free of tariffs, and to maintain a trade surplus with us.
The government should now engineer some pullback from our side. For example, we should not be taken for granted and treated as a subservient partner to America’s war machine, particularly in the context of the US obsession with China as a so-called threat. We must indicate our independence in any skirmish over Taiwan and downplay the level of our defence cooperation with the US, in favour of more cooperation with countries in our region. We should seek to preserve our sovereignty at all costs.

We should also show a willingness to reconsider our defence procurements, switching from US products to, say, European suppliers – as Portugal is reportedly doing in choosing to replace its ageing American- made F-16 fighters with European jets. Canada is apparently actively considering the same, even in the midst of a US$14 billion contract to buy from the US. It has already been widely suggested that the government should seek to renegotiate the AUKUS pact on nuclear submarines, which is a very poor deal for Australia and heavily skewed in favour of the US. At the very least the government should insist on full transparency, ensuring that all details of the deal are made public for more informed popular and political discourse – but we should look to source submarines elsewhere.
Former Labor senator Doug Cameron has been suggesting Australia seek a new agreement with the French. Among other prospective partners on a submarine deal would be Britain, Japan or Norway. Australia’s nuclear subs agreement ought to be considered in the context of the clear need to to significantly increase our overall defence expenditure. Much of the roughly $350 billion committed to AUKUS could be freed up in this process, especially with a more cost-effective purchase of submarines, without all the conditions.
Australia should also broaden its horizons in relation to the vacuum left by the US in the provision of foreign aid and investment in energy transition and climate. The cuts to USAID programs have left many NGOs across the globe, and many academics and researchers, critically underfunded. Surely these projects can be sifted through to determine the most worthwhile, especially in the Asia Pacific region. Moreover, Australia should have a strategy to attract talented scientists and researchers, to capitalise on the inevitable brain drain from the US. Presumably China and European countries will be seeking to do the same.

US Secretary of State Marco Rubio has announced the Trump administration is cancelling 83 per cent of USAID programs and intends to fold the remainder into the State Department. One area that should be of particular interest to Australia – especially as it’s one in which we have traditionally enjoyed an advantage, if not a leadership role – is that of medical and related scientific research. I was struck by the short- sightedness of Trump’s $800 million cut in grants to Johns Hopkins University, my old alma mater, which resulted in lay-offs of 2200 workers from their research programs across the globe.
Johns Hopkins is a world-leading research university, especially in medical and public health research. The cuts are concentrated in its international research programs across 44 countries. The university has said it is proud of the work its employees have done “to care for mothers and infants, fight disease, provide clean drinking water, and advance countless other critical, life-saving efforts around the world”. What a great area for us to seek to pick up invaluable research, either directly or even in conjunction with the university.

To fully capitalise on these kinds of opportunities, the Australian government – Labor or Coalition – will need to properly fund our universities and research activities, and shift its narratives to recognise the significance of higher education and research more generally to the future of this country.
Trump’s decision to withdraw from the Paris climate accord and to pull back on the Biden administration’s climate programs presents another major opportunity. Australia can step up more globally to the energy transition challenge – on our own or in conjunction with European countries and even China. This would align with our desire to be a leader – indeed a superpower – in renewable energy, as we have the natural resource advantages in wind, solar and related technologies and an educated and experienced workforce.
Similarly, in terms of the development of our critical minerals and rare earths, we would benefit from working with a strong financial partner to top up our government finance and private sector support. We can learn from the appalling way Trump bullied Ukraine President Volodymyr Zelensky on this issue. To proceed with a European or Chinese partner would surely force the US president to recognise he actually doesn’t hold all the cards.

The end result of Trump’s behaviour may well be America First – but isolated, completing its global demise.

https://www.thesaturdaypaper.com.au/comment/topic/2025/03/22/road-map-us-reset

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